The Securities and Exchange Commission filed an emergency enforcement action against several Florida residents alleging that an investment opportunity involving “fancy colored diamonds” and diamond-related cryptocurrency was a Ponzi scheme that raised at least $30 million from hundreds of victims. Jose Aman, Harold Seigel, and Jonathan Siegel, along with their related companies, were charged with violations of federal securities laws in a complaint filed in the Southern District of Florida. In addition to seeking the standard remedies, the SEC obtained the appointment of a receiver over the operation’s assets and is seeking the return of nearly $2 million paid to a church and pastor associated with the defendants.

According to the complaint, the men owned and/or operated Natural Diamonds Investment Co. (“Natural Diamonds”), Eagle Financial Diamond Group Inc. (“Eagle”), and Argyle Coin, LLC (“Argyle”) (collectively, the “Companies”). Beginning no later than May 2014, the Defendants allegedly raised at least $30 million from investors through several offerings. In offerings through Natural Diamonds and Eagle, potential investors were told that their funds would be used to purchase, refurbish, and resell high grade diamonds. Investors were promised varying amounts of return depending on the offering, with the Natural Diamonds offering promising 2% monthly interest for 24 months and the Eagle offering promising to double an investor’s money within 18 or 24 months.

Some investors were solicited through Harold Seigel’s radio show and podcast titled “The World Financial Report” in which the offerings were touted as opportunities to earn 24% annual returns. The SEC claims that these solicitations often includes assurances that the investment was safe, secure, and backed by “diamonds worth 10 times [the investment amount].” It appears that the vast majority of funds, approximately $25 million, was raised through the Eagle offering from March 2015 through December 2018. The Complaint also alleges that funds raised in the various offerings were routinely commingled to rectify account overdrafts or make purported interest payments to investors.

Beginning in December 2017, the Defendants allegedly began soliciting investments in a supposed cryptocurrency token called the “RGL Coin” that was purportedly backed by “fancy colored diamonds” and 100% guaranteed by an “insurance bond.” Potential investors were told that they were investing in the “Argyle Coin Project” and that their funds would be used to buy and sell diamonds and to build a virtual platform where diamonds could be bought and sold online. On its now-disabled website, Argyle made the following claims:

Argyle Coin is the first cryptocurrency to offer the public an opportunity to be directly buying and investing in the growing fancy colored diamond marketWhy Is It Unique?

The Company is creating a new platform to buy and sell fancy colored diamonds. Through a secure, effective and fast system. It is an end-to-end solution with its own Token and systems of verification, trading and tracking of diamonds.

RGL as the trading symbol. It serves as a reference for the use of this system and in the market of precious gemsWhy Argyle Coin?

Mitigating Risk Factors:

Third-party insurance bond that guarantees 100% of Pre-Sale and Crowdfunding purchases made, guaranteeing that every token will be delivered.

Argyle also promoted the investment through the below video:

Through an initial coin offering, Argyle raised at least $1.7 million from investors including a $500,000 investment from an unnamed “professional football player” residing in Wellington, Florida.

The SEC alleges that Argyle’s purportedly lucrative diamond-reselling operation was actually a Ponzi scheme that used money from new investors to pay purported returns to existing investors. Of the approximately $30 million raised from investors, the Defendants allegedly misappropriated at least $10 million to pay fictitious returns and also for Aman’s personal expenses that included house payments, shopping at Gucci, and buying horses and riding lessons for his son. In addition, the SEC claims that Aman’s church and pastors received more than $1.5 million in improper payments tied to the scheme. While Argyle Coin did have an insurance bond, its coverage only applied if Argyle Coin developed a cryptocurrency which the SEC claims did not happen.

A Rhode Island woman was arrested on allegations that she ran a Ponzi scheme that raised more than $10 million from investors who thought they would receive half of the purported profits from the renovation and rehabilitation of foreclosed homes. Monique N. Brady, 44, was arrested and charged with a single count of wire fraud, a count which carries a maximum twenty-year prison sentence. The criminal charges come nearly a year after multiple investors sued Brady for the return of their money, including one investor who claimed that Brady “approached him about a new business she was starting to help support her children, including one with special needs.”

Brady formed MNB LLC (“MNB”) in October 2005. Brady told potential investors that MNB often contracted with private and government entities, including Freddie Mac, to perform large-scale rehabilitation projects on foreclosed houses throughout Rhode Island. Those investors were told that they could expect to receive 50% of the expected profits from these projects. In total, Brady raised more than $10 million from at least 32 investors, including Brady’s step-brother, the former nanny for her children, and multiple elderly victims who entrusted most or all of their life savings to Brady.

According to prosecutors, Brady’s claims of realizing significant profits from performing large-scale renovations were simply false. Instead, the work that MNB actually performed on some houses allegedly amounted to nothing more than menial tasks to preserve the value of those houses and prepare for an eventual sale such as snow blowing, electrical and boiler inspections, lawn mowing, and changing locks. boiler inspections. Far from bringing in significant revenues, the complaint alleges that most of those projects were for relatively small dollar amounts ranging from $25 to a few hundred dollars. Despite the menial nature of the work, Brady solicited investors to contribute large sums towards the purported projects - sometimes multiple investors for the same project. For example, the Complaint recaps the following instances of Brady’s solicitation of significant investments for projects that yielded far smaller revenues:

Two investors for the 144 Scappa Flow Road Project in Charlestown, RI. Brady received $20 in income for the project and $120,006 in investments.

Five investors for the 20 Arlee Road Project in Warwick, RI. Brady received $35 in income for the project and $47,925 in investments.

In other instances, the Complaint alleges that Brady simply solicited investments for projects that did not exist.

Six months after he filed for bankruptcy, a California investment adviser was arrested and is now facing civil and criminal charges accusing him of operating a $7 million Ponzi scheme that pitched investments in an organic beef ranch, housing projects, and a marijuana cultivation plan. Christopher Dougherty, 45, was arrested by California state authorities yesterday morning on charges of grand theft, elder abuse, and securities fraud and was also the subject of a complaint filed today by the Securities and Exchange Commission accusing him of violating federal securities laws. As of yesterday, Dougherty was being held on $5 million bond.

Dougherty has been in the financial services industry since 1998 as both a registered representative and an investment adviser, acting after 2012 solely as an investment adviser. Dougherty owned and operated several businesses, including C&D Professional Services, Inc. d/b/a C&N Wealth Management (“C&D”), JTA Farm Enterprises, LLC d/b/a JTA Cattle and Hay Broker Services (“JTA Farm”), and JTA Real Estate Holdings, LLC (“JTA Real Estate”). After forming relationships with many San Diego school district employees in the mid-2000s, Dougherty formed C&D and invited many of those contacts to join him at that firm. Dougherty ultimately had 30-40 advisory clients at C&D.

In addition to advising those clients on their third-party investments, he also invited them to invest through him in either (1) various “private placements,” (2) JTA Farm, or (3) JTA Real Estate. For example, clients were told that Dougherty’s “private placements” provided quarterly 5% dividends that were tax-free. For JTA Farm, Dougherty told clients that they were investing in his farm, with some investors being sold “hay contracts,” and that any profits would come from the farm’s operations. Finally, a few clients were told that their funds would be used by JTA Real Estate to renovate and sell a residential property in El Centro, California, and that they would derive profits from the eventual sale of the property. In total, Dougherty raised at least $7 million from his clients.

According to the Commission, Dougherty’s representations regarding the private placements, JTA Farm, and JTA Real Estate were false. Dougherty allegedly did not make a single investment using any funds raised from the “private placements,” his JTA Farm activities were minimal and did not make a profit, and the house touted to JTA Real Estate investors was never finished. Instead, the Commission claims that Dougherty mastermined a typical Ponzi scheme by using new investments to pay returns to existing investors. In addition to paying investors $2.4 million in fictitious interest and principal, Dougherty is also accused of misappropriating millions of dollars in investor funds to sustain a lavish lifestyle that included mortgage payments, cars, vacations, and credit card payments.

Dougherty’s scheme encountered difficulties in 2017 when he was not able to attract enough new investor money to sustain his existing investor obligations. After several investors filed suit against Dougherty in 20187 to recover their investments, Dougherty and his wife filed bankruptcy in October 2018. However, the U.S. Trustee’s review of Dougherty’s finances recently resulted in a March 2019 filing concluding that:

The Debtors’ practice of using new investment money to pay existing investors dividends and principal gave the false impression that the payments received by investors came from earnings and profits or from a return of the principal. This deception is the basis of a Ponzi scheme.

Fox’s San Diego affiliate reports that Dougherty faces up to 35 years in prison if convicted of the criminal charges.

December 2018 marked the ten-year anniversary of the collapse of Bernard Madoff's massive Ponzi scheme, a cataclysmic event that catapulted the term "Ponzi scheme" into the everyday lexicon and was the likely impetus for the Associated Press's decision to crown 2009 as “The Year of the Ponzi Scheme. While the sheer economic destruction of that scheme and $17 billion in losses will likely (and hopefully) never be equaled, many may not realize that Madoff's scheme was literally one of hundreds of Ponzi schemes to collapse in the recent ten-year period that Ponzitracker has termed the "Madoff Era." Indeed, an extensive and exclusive recent analysis by Ponzitracker shows that over 800 Ponzi schemes were discovered from 2008-2018 that collectively caused nearly $60 billion in losses. Believed to be the first database compiling Ponzi scheme discoveries and sentences during the "Madoff Era," the analysis provides jaw-dropping context to the continuing destruction caused by these financial schemes.

“Only When The Tide Goes Out Do You Discover Who’s Been Swimming Naked”

Ponzi schemes can generally be thought of as a lagging economic indicator – the hallmark outsized and consistent gains promised by the fraudsters at least appear more realistic and possible amidst a booming economy, and investors are generally content to watch their accounts steadily climb in the midst of continuing market gains. As long as these times continue and new investor funds continue rolling in, the scheme stays afloat and is able to meet its obligations to existing investors. Indeed, from October 2002 to October 2007, the S&P 500 Index gained over 100% – nearly 2% per month. It is not surprising, then, that very few Ponzi schemes were uncovered during that period. Many did not realize that they were unwitting participants in what would soon be a staggering loss of wealth.

In 2008, the metaphorical tide began to go out as stock markets plummeted amidst unprecedented market turmoil. The S&P 500 suffered its largest annual decline that year (-38.49%) since 1937. Jittery investors began safeguarding their capital, including turning to their “safe” investments that had been touted as impervious to risk and historically delivered consistent returns in any market. The continuity of new investor funds is the lifeblood of a Ponzi scheme, and schemes began to collapse in droves as both new investor funds dried up and redemption requests soared. Three of the largest Ponzi schemes in U.S. history (Madoff, Stanford, and Petters) collapsed in the span of ten months and alone involved approximately $25 billion in investor losses. Those schemes were among more than 150 schemes that were uncovered in 2008 and 2009 - including nearly 120 in 2009 alone.

"Are we at high tide?"

Since the S&P 500 bottomed out in March 2009, it has since posted an increase of nearly 270% by the end of 2018 in one of the longest bull markets in history. As the bull market picked up steam after the “Great Recession,” the number of schemes uncovered in the immediate aftermath appears to support the hypothesis that Ponzi schemes can be thought of as a lagging economic indicator. Below is a chart of discovered Ponzi schemes from 2008 - 2018 (generally featuring losses of roughly $1 million or more):

2008: 40

2009: 118

2010: 80

2011: 99

2012: 103

2013: 65

2014: 66

2015: 73

2016: 65

2017: 60

2018: 42

In total, approximately 811 Ponzi schemes were uncovered from 2008 to 2018. The actual number is likely higher; Ponzitracker's analysis was generally limited to Ponzi schemes that raised approximately $1 million or more from investors. Those 811 schemes involved over $58 billion of investor funds, with an average scheme size of $71.8 million and a median size of $8 million. To put that number in comparison, the $58 billion involved in those Ponzi schemes is just shy of Costa Rica's 2018 gross domestic product. These figures only account for Ponzi schemes in the United States - a country with one of the most aggressive and proactive regulatory frameworks - and thus the worldwide total is unfortunately most likely a multiple of this number.

The data shows that Ponzi scheme discoveries peaked from 2009 to 2012 with at least 90 schemes discovered each year during that period. Several factors can be attributed to this increase. First, Madoff and other large schemes had a violent ripple effect across the financial industry as jittery investors caused a wave of redemption requests. These redemption requests quickly overwhelmed Ponzi schemes that had been on the brink of collapse given tumultuous market conditions and the lack of new investors. Second, regulators began taking a much more aggressive approach to rooting out fraud amidst claims that they had not acted quick enough to detect Madoff and other schemes. These increased enforcement efforts were successful at rooting out roughly 400 Ponzi schemes from 2009 - 2012 alone.

After 103 Ponzi schemes were discovered in 2012, the next five years saw a potential post-Recession “new normal” with the number of schemes uncovered each year holding in a range from 60-73. After 60 schemes were uncovered in 2017, that number dropped by 30% to just 42 in 2018 - the lowest number of discoveries since at least 2008. The theories for this decrease are both encouraging and ominous. For example, the decrease could be due to increased regulatory efforts that have corrected previous inefficiencies and succeeded in identifying the schemes before they were able to proliferate. The Securities and Exchange Commission disclosed in its most recent Regulatory Priorities that it was continuing to focus on increasing its examinations of registered investment advisors and that it now covered 17% of investment advisors - an increase from a 10% coverage rate earlier this decade. Another positive potential reason could be that efforts to educate investors about spotting fraud are paying dividends. The rationale could also be ominous if the previous bull market from 2002-2007 is any indicator of what to expect when the current market runs into headwinds; the number of schemes uncovered in 2008 nearly doubled in 2009 in the wake of economic turmoil and it was not for ten years until the number of annual discoveries returned back to 2008 numbers.

What do we know about our accused Ponzi schemers? For starters, nearly nine of ten are men. From 2008 to 2018, men never accounted for less than 84% of all Ponzi schemes and collectively comprised 89% of individuals charged with running Ponzi schemes. The percentage of women accused in Ponzi schemes hovered at a high of around 15% in 2014 and 2015 but has since decreased to less than 7% in 2018. Each of the 50 states is represented in Ponzitracker’s database, but the majority of schemes were concentrated in a handful of states with large populations (including retirees). California topped the list, with nearly 20% of the nearly-1,000 individuals accused of masterminding or assisting in Ponzi schemes from 2008-2018 hailing from the state. Florida, New York, Texas, and Illinois rounded out the top 5, with nearly 60% of all individuals in the database hailing from those five states. In a surprising statistic, Utah had the sixth-highest number of Ponzi schemers despite ranking 31st in population. The disparate rate of Ponzi schemes in Utah is likely attributable at least in part to the state’s large Mormon population which has been a hotbed for affinity fraud. Eight states also had collective investor losses of at least $1 billion during the pertinent period.

One trend has remained constant over the years: Ponzi schemers are often (and some would say rightly) harshly punished by the legal system for their misgivings. The prospect of a harsh sentence is likely more certain in federal court proceedings where prosecutors have an arsenal of criminal fraud statutes at their disposal that carry lengthy potential sentences. For example, most Ponzi schemers typically face charges of mail fraud, wire fraud, and/or securities fraud which each carry a maximum twenty-year prison term. That, coupled with federal sentencing guidelines that heavily emphasize the amount of economic losses, generally makes a federal courtroom an unfriendly place for a Ponzi schemer awaiting his/her fate.

From 2008-2018, Ponzitracker’s database shows that at least 715 individuals were sentenced for their roles in a Ponzi scheme. This equated to nearly 8,000 years of collective prison sentences with an average sentence of 130 months and a median sentence of 97 months. While the 150-year and 110-year sentences handed down to Madoff and Stanford are not surprising given the billions in losses, some outliers have resulted in lengthy sentences for schemers with considerably smaller losses. For example, Florida resident James Jackson Jr. saw a judge hand down a 90-year sentence for a scheme with approximately $2 million in losses. Juan Miguel Lopez, of Texas, received a 79-year sentence for a $4.9 million scheme. While the rationale for those sentences is uncertain, one certainty is that the disparities are not likely to evoke sympathy from the aggrieved victims.

The Full Database is below:

Disclaimer - This database was compiled using publicly available news sources. As a general rule, the database includes schemes of $1 million or more. The names and sentences displayed are based off news reports, and are not independently verified. Please contact Ponzitracker here with any clarifications or comments.

The Commodity Futures Trading Commission recently unsealed an action in Florida federal court accusing five men of operating a Ponzi scheme that raised at least $75 million from at least 650 investors nationwide. The action, filed in the Middle District of Florida, charges Michael DaCorta, Joseph S. Anile, II, Raymond P. Montie III, Francisco “Frank” Duran, John Haas, and various entities with violations of the Commodity Exchange Act and seeks various relief including a permanent injunction, disgorgement of ill-gotten gains, restitution, and imposition of civil monetary penalties. A temporary receiver was also appointed at the Commission’s request to marshal assets for the benefit of defrauded victims.

The Complaint alleges that the Defendants operated several entities, Oasis International Group Ltd., Oasis Management LLC, and Satellite Holdings Company, collectively as “Oasis” and began soliciting victims in mid-2014 to invest in two commodity pools - Oasis Global FX, Limited (“Oasis Pool 1”) and Oasis Global FX, SA (“Oasis Pool 2” (collectively, the “Oasis Pools”) with promises of minimum 12% annual returns derived from trading forex. Potential “lenders,” as investors were called in an apparent effort to avoid implicating federal securities laws, were told that the Oasis Pools had never had a losing month (indeed, one Defendant allegedly claimed the operation had never had a down day), that there was no risk of loss, and that the only way forex trading could be a bad investment was “if all the banks in the world closed.” Oasis also allegedly offered a referral program designed to incentivize the recruitment of new investors.

Potential investors were told that DaCorta was the “brains of the operation” who was able to obtain consistent returns by trading forex, with the Oasis Pools purportedly returning 22% in 2017 and 21% in 2018. Investors were also told that the guaranteed annual return of 12% was a minimum return, as investors would also be entitled to share the daily profits their funds purportedly generated from trading. Oasis also allegedly made numerous representations concerning the safety of investor funds, including Defendant Duran’s purported statements that Oasis owned at least $15 million in real estate and precious metals that served as collateral for its investments and that “the Oasis Pools’ trading platform could not lose money unless there was a bigger problem in the financial markets and people were going to supermarkets with shotguns.” Investors were received regular account statements showing the purported growth of their account. Oasis ultimately raised roughly $75 million from at least 650 investors nationwide (despite claiming on its website that it was not open to U.S. investors).

According to the Commission, however, all of these claims were false and designed to conceal Oasis’s operation of a classic Ponzi scheme by paying fictitious returns using investor funds. For starters, the Commission alleges that potential investors were not told that DaCorta was effectively permanently banned from the forex trading industry in 2010 after several rules violations during his time as President of a forex trading firm. While Oasis did engage in some legitimate trading, the Commission alleges that it suffered near total losses of investor funds (and not the consistent above-20% returns in 2017-2018). For example, Oasis’s actual returns in 2017 and 2018 were -45% and -96%, respectively. And contrary to Defendants’ representations regarding the safety of investor funds, the Commission alleges that the forex trades in the Oasis accounts had a 100:1 leverage ratio.

Of the approximately $47 million that was not invested as promised, the Commission claims that Defendants misappropriated those funds to, among other things, make $28 million in Ponzi payments, purchase nearly $8 million of real estate, live a luxurious lifestyle, and make transfers to related third parties.